2010 (12) TMI 750 - HC - Income Tax

Speculative share losses under Section 73 read with Section 28 Explanation 2 cannot offset house property income

HC held that while an appellate authority may permit a new ground to be raised for the first time in appeal, such discretion must be exercised judiciously ... Set off of loss suffered on sale and purchase of shares - speculative transactions - Applicability of Section 73 and Explanation to Section 73 - Allowance of additional issue - scope of section 73 r/w section 28 Expln. 2 - HELD THAT:- No doubt that an appellate authority can allow a question to be raised for the first time even if such a question was not raised at a lower forum but the discretion to do so has to be exercised in the interest of justice in the facts and circumstances and not mechanically. In National Thermal Power Ltd.'s case [1996 (12) TMI 7 - SUPREME COURT (LB)], it has not been laid down that in every case a question of fact can be mechanically allowed to be raised for the first time. The Madhya Pradesh High Court in CIT v. Premium Capital Market & Investment Ltd. [2005 (1) TMI 54 - MADHYA PRADESH HIGH COURT], held that question of validity of notice may not be allowed to be raised for the first time in appeal. Subsequent legislative amendment adding section 292BB supports this principle. The question has, thus, to be answered against the assessee. Assessee submits that the income of the assessee mainly being under the head of income from property, the assessee was not covered by Explanation to section 73 and in such a situation the assessee could set off loss in speculative transactions against income from house property. The bar against set off of losses in speculative transactions against income from other services applied only to assessees covered by Explanation to section 73. - The scope of section 73 r/w section 28 Expln. 2 is to deal with the situation where loss in speculative transaction is sought to be set off against other business income section 73 provides that such loss can be set off only against income from speculative business. The object of Explanation is to explain this scheme in the main provision to situations where part of business is from speculative transactions. To that extent the assessee will be deemed to be carrying on speculative business. Thus, contention raised on behalf of the assessee that categories of assessees excluded under the Explanation can be allowed to set off loss in speculative transactions against income from any other source cannot be accepted. As already discussed, even business loss in speculative transactions cannot be set off against other business income or income from other sources, except as may be expressly provided. If that is so, loss from speculative transactions could not stand on higher footing than the business loss so as to qualify for set off against other income. Wherever deductions out of income from property are permissible, the same have been specified in section 24. De hors the said provision, deduction from income is not permissible. This view has also been taken by Delhi High Court in CIT v. H.G. Gupta & Sons [1983 (12) TMI 54 - DELHI HIGH COURT]. Accordingly, the appeal is dismissed. Issues Involved:1. Allowance of additional issue raised for the first time in appeal.2. Applicability of Section 73 and Explanation to Section 73 of the IT Act.3. Admissibility of brokerage as a deductible expenditure under Section 24 of the IT Act.Detailed Analysis:Issue 1: Allowance of Additional Issue Raised for the First Time in AppealThe assessee contended that the assessment was barred by limitation as the notice under Section 143(2) of the IT Act was not served within the stipulated time. The Tribunal rejected this plea, noting that the assessee did not raise this issue earlier despite having the opportunity. The Tribunal referenced Supreme Court judgments in National Thermal Power Co. Ltd. v. CIT and Jute Corporation of India Ltd. v. CIT to support its decision. The High Court upheld the Tribunal's view, stating that while an appellate authority can allow a new question to be raised, it should not be done mechanically and must consider the interest of justice. The Madhya Pradesh High Court's decision in CIT v. Premium Capital Market & Investment Ltd. and the legislative amendment adding Section 292BB were also cited to support this principle. The question was thus answered against the assessee.Issue 2: Applicability of Section 73 and Explanation to Section 73 of the IT ActThe assessee argued that since its income mainly derived from house property, it was not covered by the Explanation to Section 73, and thus, the loss from speculative transactions should be set off against income from house property. The Tribunal disagreed, noting that under the scheme of the IT Act, business loss cannot be set off against income from other heads unless specifically provided. The Tribunal emphasized that speculative transaction losses cannot be set off against other business income. The High Court upheld this view, explaining that the object of the Explanation to Section 73 was to prevent tax avoidance through share dealings, as recommended by the Wanchoo Committee Report. The High Court concluded that the categories of assessees excluded under the Explanation could not set off loss in speculative transactions against income from any other source. The question was answered against the assessee.Issue 3: Admissibility of Brokerage as a Deductible Expenditure under Section 24 of the IT ActThe assessee claimed that the brokerage paid should be deductible from the income of house property as the rent received was after deducting the brokerage. The Tribunal and the High Court rejected this claim, noting that deductions from house property income are specified under Section 24, and brokerage is not listed as an allowable deduction. The High Court referenced the Delhi High Court's decision in CIT v. H.G. Gupta & Sons, which supported this view. The High Court concluded that brokerage paid to property dealers is not a permissible deduction under Section 24. The question was thus answered against the assessee.Conclusion:The appeal was dismissed, with all substantial questions of law answered against the assessee. The Tribunal's decisions on the issues of additional issue allowance, applicability of Section 73, and admissibility of brokerage as a deductible expenditure were upheld by the High Court.